Starwood Waypoint, Colony American to Combine in Stock Deal

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Starwood Waypoint Residential Trust and Colony American Homes, two of the largest U.S. single-family home landlords, said they will merge in an all-stock deal that creates a company with $7.7 billion in assets.

Colony America’s stockholders will receive 64.9 million shares of Starwood Waypoint in exchange for all shares of closely held Colony. Starwood Waypoint shareholders will own 41 percent of the combined business and Colony American investors will hold the rest, the companies said in a statement Monday.

The new company, which will have more than 30,000 homes, will take advantage of the demand for rental properties as tight mortgage standards and rising prices hold back home purchases. Single-family landlords, which generally own houses scattered over a wide geographic area, have been consolidating or buying real estate in bulk so they can operate more efficiently.

“We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry,” Thomas Barrack Jr., executive chairman of Colony Capital Inc., said in a statement.

Colony Capital, which had invested in the rental-home firm and owned a stake through one of its subsidiaries, will receive

14.7 million common shares of Starwood Waypoint, representing

13.38 percent of the combined company, according to a regulatory filing today.

Company Management

Barrack and Barry Sternlicht, chairman of Starwood Waypoint and head of investing firm Starwood Capital Group, will serve as non-executive co-chairmen of the new company’s board. Fred Tuomi, president and chief operating officer of Colony American, will be CEO of the combined company. Doug Brien, CEO of Starwood Waypoint, will be president and chief operating officer.

Starwood Waypoint jumped 10 percent to $25.12 at 9:46 a.m. New York time Monday. The shares are down almost 14 percent this year through Sept. 18.

The real estate investment trust and other publicly traded single-family landlords sold stock before they filled many of their properties with tenants, and have been struggling to convince investors they can operate the businesses efficiently.

“The transaction resolves several strategic issues that SWAY has been facing, including scale and its externally managed corporate structure,” Jade Rahmani, an analyst with Keefe Bruyette & Woods, wrote in a note to clients, referring to Starwood Waypoint’s ticker symbol. The merger should “allow the company to garner interest from institutional investors.”

The combined company is expected to maintain Starwood Waypoint’s quarterly dividend of 19 cents a share, according to the statement. The transaction has been approved by the boards of both companies and is expected to close in the first quarter.